Switch from enhanced to fixed protection ‘could add £75,000’
Tuesday, 21 February 2012 09:24
People with enhanced protection on pensions valued up to £1.8 million could gain from switching to fixed protection before the tax year end deadline, according to Skandia.
If they continue with enhanced protection, their maximum tax-free cash allowance will fall to £375,000 from April 6, which is 25 per cent of the reduced £1.5 million Lifetime Allowance.
However, if they switch to fixed protection then the maximum tax-free cash available would remain at £450,000, which is 25 per cent of the current £1.8 million LTA, resulting in an extra £75,000 in available tax-free cash, the pension expert said.
Over 55s could achieve the best of both worlds by moving £1.8 million into drawdown before April 6, which would provide them with a higher tax-free cash amount and an unlimited LTA, Skandia said.
But this would involve moving high sums of money into an environment which has a 55 per cent tax charge if they die.
Pension expert Adrian Walker said: “The incentive of up to £75,000 extra in tax-free cash is appealing, but this needs to be weighed up against the loss of an unlimited LTA, something that can be extremely valuable depending on how the stock market performs over the coming years.”
The deadline for applying to HMRC for fixed protection is April 5.
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